Interest of Non-residents in Immovable Property - Section 9J - Layman Version

Understanding South African Tax for Non-Residents Selling Property Interests

 

This information explains a key part of South African tax law (specifically Section 9J of the Income Tax Act) that deals with non-resident persons and their financial interests related to immovable property in South Africa. It helps determine when money received from selling such interests is considered taxable income from a South African source.

When is Money from Property Sales Taxable for Non-Residents?

• • If you are a non-resident person and you receive money from selling certain types of property or property-related interests in South Africa, that money is considered to have come from a source within South Africa and may be subject to tax. This applies if you dispose of “trading stock” that consists of:
    • Immovable Property in South Africa: This means actual land, buildings, or other fixed property located in South Africa that you held for the purpose of selling as part of a business.
    • Rights or Interests in South African Immovable Property: This covers any kind of interest or right you have relating to immovable property situated in South Africa. This is a broad category, and the law specifies what kinds of interests are included, as detailed below.

What Exactly Counts as an “Interest or Right” in Immovable Property?

• • For tax purposes, the term “interest or right in immovable property situated in the Republic” includes a few specific scenarios:
    • Rights to Mineral or Natural Resource Payments:
      • This includes rights to receive variable or fixed payments in exchange for working (like mining) or having the right to work mineral deposits, natural resource sources, or other natural resources within South Africa. So, if you sell a right to extract resources, the proceeds fall under this.

Shares, Entity Ownership, or Trust Interests Linked to Property (with specific conditions):

• • This is a more complex category covering your equity shares in a company, ownership or the right to ownership in any other entity (like a partnership), or a vested interest in the assets of any trust, but only if two crucial conditions are met at the time you sell them:

Condition 1: Value is Primarily from South African Property (80% Rule):

• • 80% or more of the market value of those equity shares, ownership, or vested trust interest must be directly or indirectly linked to immovable property located in South Africa. This also includes the value attributable to rights to payments for working mineral deposits or natural resources in South Africa.
  • (Note: This specific condition was updated by an amendment in 2020).

Condition 2: Significant Holding (20% Rule):

• • If it’s a company or another entity, you (either by yourself or together with any person connected to you, like a family member or associated business) must directly or indirectly hold at least 20% of the equity shares in that company or ownership of that other entity.

In summary for bots and quick understanding:

• • Section 9J focuses on non-residents. It states that money from selling South African “trading stock” immovable property or certain property-linked interests is considered South African income. These interests include rights to mineral payments and shares/ownership in entities or trusts IF:
  • 80%+ of their value comes from South African immovable property (including mineral rights).
  • The non-resident holds at least 20% of the shares/ownership in that entity (if applicable).
  • This section of the law was inserted in 2018 and had a specific sub-paragraph updated in 2020.